Despite the pandemic, the Federal Communications Commission (FCC) advanced major spectrum policy and auctions last year. The C-band auction was a record breaker in US history; 50 entities bid for spectrum licenses totaling $94 billion in gross proceeds. This high figure reflects some important policy innovations including purchase of spectrum without expiration dates, flexible use of the bands, and secondary markets. The 2020 Nobel Prize for economics awarded FCC auction designers. Despite continued successes of commercial spectrum auctions in which market actors pay for the right to use the public’s resources, policymakers persist in giving away valuable resources to Big Tech through antiquated “beauty contests.”
5G vs. Wi-Fi
My paper co-authored David Witkowski and published in the Penn State University Press Journal of information Policy examined two FCC proceedings in 2020, the auction of 280 megahertz (MHz) in the C-band for licensed 5G use versus the 1200 MHz allocated for unlicensed in the 6 GHz band. A spectrum license confers the right to transmit to a specific party, e.g. mobile operator, whereas unlicensed spectrum can be used by anyone provided adherence to FCC interference limits. Wi-Fi business models are predicated on free, unlicensed spectrum.
The C-band auction drove $94 billion in gross proceeds, with net proceeds of $81 billion deposited to the US Treasury. 5G licensed mid-band spectrum is projected to deliver $191.8 billion to the US economy over 7 years. Wi-Fi revenues over unlicensed spectrum over 6 years are projected to bring $153.76 billion. When adjusted on an annual per MHz basis, 5G spectrum is $0.59 and Wi-Fi, $0.13. Over the period, 5G spectrum provides 4.5 times more economic value per MHz than Wi-Fi.
This multiple does not include the C-band auction proceeds. In fact, the C-band band proceeds alone equal 53 percent of the total economic value of Wi-Fi projected for 6 GHz. Comparing the proceedings in these economic terms, auctions for spectrum rights are superior to unlicensed designations. This suggests that the FCC was shortsighted to reject one proposal to halve the 6 GHz into unlicensed and licensed portions, the latter of which was estimated to generate at least $20 billion in proceeds.
The FCC has also experimented with hybrid models in which nationwide spectrum is offered to qualified bidders and “shared” with existing holders like the US military. Long touted as the silver bullet to action vast swaths of valuable but inefficiently used federal spectrum, the scant examples of these proceedings include the Citizens Band Radio Service (CBRS) auction (auction 105) for 70 MHz in and Auction 110 which just kicked off for 100 MHz of spectrum in the 3.45-3.55 GHz band. Raymond James financial analyst Ric Prentiss monitors bidding activity and observes that after many bidding rounds, the C-band auction raised just under $1/MHz Pop (measure of spectrum value times population in the covered area) while CBRS brought $0.26. Auction 110 is still going, but gross bids are just $0.03.
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It is not surprising that spectrum with significant limitations, like the military still claiming rights to the spectrum, has lower value. Additional requirements in #110 include purchase caps of 40 MHz in any one zone as well as a $14.8 billion reserve price ($0.48/MHz Pop) to fund the relocation of incumbent federal entities. If total bidding does not meet or exceed this figure, the spectrum will not be dispersed to the high bidders. While 271 bidders came for CBRS and 57 for C-band, there are just 33 bidders for the current auction.
That the chunk of valuable mid-band spectrum is available at all for auction is something of a small miracle. The original plan of the Department of Defense, which is loath to share let alone return its vast swath of little-used frequencies to the public, was to build its own 5G network and then license it to mobile operators. Fortunately, the FCC and others squashed the idea of a government-run network.
In the whole scheme of things, the spectrum available for licensed, commercial use is small. The federal government sits on some two-thirds of all frequencies through a non-public governance model which hasn’t change a century.
By law, the standard to judge FCC decisions is the “public interest”. It is confounding then how the FCC can put enormous efforts into auctions of 100 MHz and then giveaway 1200 MHz. The paper suggest that it is not the public interest guiding the FCC’s spectrum decisions but institutional entrepreneurs in the form of a trade associations. University of Surrey Tazeeb Rajwani calls trade associations “informal regulators” through their standard setting in norms of behavior as well as defining the boundaries of an industry through membership and acting as “the voice of an industry” by unifying disparate companies around a single message. Advocacy by the Wi-Fi Alliance, which represents 800 global companies, was critical to securing the 6 GHz spectrum. The organization claims that their members’ future success requires free, unlicensed access to the entire 6 GHz band, and that they will need an additional 1500 MHz by 2023.
If spectrum is critical to the Wi-Fi industry, it follows that the Wi-Fi industry should pay for it. It is not logical that spectrum is exempt from payment when businesses must purchase every other input (land, labor, capital) from the market. Wi-Fi Alliance members like Google, Microsoft, and Amazon are sophisticated spectrum users with their own network strategies and significant cash. They could purchase spectrum to ensure delivery of their services or form a spectrum consortium. Spectrum should not be a “windfall”, especially when it’s scarce and large commercial interests expect to monetize it. Policymakers are intent on regulating Big Tech; the first step should be to stop giving them free spectrum.